IMPORTANT POINTS
1. An initial assessment made by the assessing officer either on the assessee voluntarily furnishing a return of the income or furnishing such a return on being served a notice under Section 148, is a regular assessment under Section 2(40) of the Income Tax Act, but an order passed by the assessing officer making a re-assessment or revised assessment in a case where an assessment had been made, does not come within the meaning of the said expression.
2. While making the assessment under Section 147 in a case where the assessee furnishes a return in pursuance of the notice served on him under Section 148 of the Income Tax Act the provision for charging interest under Section 139(8) is applicable and it is open to the assessing officer to charge interest on the assessee in such proceeding.

Headnote:(i) Income Tax Act, 1961-Section 139(8) r/w Section 147-Interest payable by assessee-For delay in filing return-Assessment year 1984-85-Jurisdiction of ITO to levy interest in proceedings under Section 147-Initial assessment under Section 147 is a regular assessment within meaning of Section 139(8)-ITO can charge interest in such proceedings-Explanation 2 to Section 139(8) clarificatory in nature.
       That it is so, is clear on a fair reading of Section 147 in which provision is made for both assessment and re-assessment in a case where any income chargeable to tax has escaped assessment for any assessment year. The proviso treats at par the assessment under Section 143(3) and under Section 147 and makes no distinction whether the escapement of income is by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section 1 of Section 142 or Section 148. Under clauses (a) and (b) of Explanation 2 to Section 147-cases where no return has been furnished by the assessee and where a return of income has been furnished by the assessee but no assessment has been made, have both been included in the expression escaped assessment . Section 148 mandates the assessing Officer to serve a notice on the assessee before making the assessment, re-assessment or re-computation under Section 147. From the aforementioned provisions, it is manifest that an initial assessment made by the assessing officer either on the assessee voluntarily furnishing a return of the income or furnishing such a return on being served a notice under Section 148, is a regular assessment under Section 2(40) of the Income Tax Act, but an order passed by the assessing officer making a re-assessment or revised assessment in a case where an assessment had been made, does not come within the meaning of the said expression. In both the cases the manner of making the assessment is similar. The position that follows is that while making the assessment under Section 147 in a case where the assessee furnishes a return in pursuance of the notice served on him under Section 148 of the Income Tax Act the provision for charging interest under Section 139(8) is applicable and it is open to the assessing officer to charge interest on the assessee in such proceeding. This construction of the statutory provisions, in our view, is in accord with the intent and purpose for which the power to charge interest on a defaulting assessee has been vested in the assessing officer. To hold otherwise will mean that an assessee who files a delayed return will be liable to pay interest while an assessee who does not file any return is free from such a liability. Such an interpretation of statutory provisions, which will result in an absurd situation, cannot be accepted. (Para 7)
       The view taken by us that a first or initial assessment under Section 147 of the Act is a regular assessment within the meaning of Section 139(8) of the Act, has been the position of law even before the explanation in Section 139(8) was added by amendment. In that view of the matter the explanation merely clarified the position taking it beyond pale of doubt. The Parliament thought it necessary to add the explanation with a view to remove the doubt raised in certain decisions of different High Courts in which a contrary view was taken. Thus the explanation is merely a clarificatory provision and has application to the period of assessment in the case i.e. assessment year 1984-85. (Para 11)
       (ii) Income-tax Act, 1961-Section 2(40) r/w Sections 148 and 139(8)-Regular assessment-Meaning of-An initial assessment made by assessing officer either on assessee voluntarily furnishing a return of income or furnishing such a return on being served a notice under Section 148 is a regular assessment under Section 2(40). (Para 7)

JUDGMENT

D.P. Mohapatra, J.-The question that arises for determination in this appeal is whether in an assessment made under Section 147 of the Income Tax Act, 1961 (for short the Act ) it is open to the assessing authority to charge interest for default in filing return under Section 139(8) of the Act? For answering this question it is necessary to determine what is a regular assessment for the purpose of Section 139(8) of the Act.

2. Shorn of unnecessary details the facts leading to the present proceeding may be stated thus :

For the assessment year 1984-85 the assessee, appellant herein, filed a return of income in response to a notice issued under Section 148 of the Act. While completing the assessment the assessing authority charged interest under Section 139(8) and also under Section 217 of the Act. In the appeal filed by the assessee before the Commissioner of Income-Tax (Appeals) it was contended that the assessment in the case was not a regular assessment within the meaning of Section 2(40) of the Act and, therefore, no interest could be charged under Section 139(8) of the Act. The contention did not find favour with the appellate authority so far as the interest charged under Section 217 is concerned, but the contention was accepted in respect of the interest under Section 139(8) of the Act. The assessee carried the matter further in appeal to the Income Tax Appellate Tribunal wherein the contention of the appellant as noted above was accepted and the order passed by the assessing authority and confirmed by the appellate authority were set aside. The Tribunal held that the assessment was not a regular assessment but only a re-opened assessment under Section 147(a) of the Act.

In compliance with the direction of the High Court in a petition filed by the Revenue under Section 256(1) of the Act, the following question was referred by the Tribunal: "Whether on the facts and circumstances of the case levy of interest under Section 139(8) in an assessment under Section 143(3) read with Section 147(a) is valid in law ?"

The High Court by the judgment dated 31.7.1998 in ITR No. 63 of 1996 answered the question in the affirmative and held thus :

"Considering explanation 2 to Section 139(8) which is clarificatory in nature and the other case law we are of the considered view that the assessment made for the first time under Section 147(a) read with Section 148 is a regular assessment and that being so the assessing officer could legally charge interest under Section 139(8)."

The said judgment is under challenge in this appeal filed by the assessee.

3. It will be convenient to refer to the relevant provisions of the Act before considering the merits of the case.

In Section 2(40) the term regular assessment is defined to mean the assessment made under sub-section (3) of Section 143 or Section 144.

In Section 139(8) a provision is made regarding liability of the assessee to pay simple interest at the rate of fifteen percent per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return or, where no return has been furnished, the date of completion of the assessment under Section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source. In the proviso to sub-section (8) the assessing officer is vested with power in such cases and under such circumstances as may be prescribed, to reduce or waive the interest payable by an assessee under the sub-section. Explanation 2 to sub-section (8) on which strong reliance is placed by the appellant reads thus:

"Explanation 2.-Where, in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this sub-section….."

This explanation was introduced in the Act by the Taxation Laws (Amendment) Act, 1984 w.e.f. 1.4.

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2000 Supreme(SC) 1931

Cases Referred (1)